New Bill Would Require E-Coms to Charge State Taxes

The tax bill may be coming due for online retailers who sell across state borders without collecting state taxes.

Assistant Senate Majority Leader Dick Durbin (D-Ill.) led a group of senators today in introducing a bill that would require online and catalog sellers to collect taxes at the point of purchase. Uncollected taxes from such purchases amounted to some $23 billion in 2012, according to the bill's sponsors.

The National Retail Federation immediately announced its support for the Marketplace Fairness Act, saying it would level the playing field between online and brick-and-mortar retailers, which have complained for years that online sellers maintain an automatic price advantage over them through non-collection of taxes.

“We represent retailers of all different shapes and sizes, folks in every retail channel, including online,” says NRF's SVP for Government Relations David French. “We support the bill because our view is that a level playing field is the only fair way to allow retailers to compete as retailers, as opposed to giving some retailers a distinct advantage.”

Twenty-four state legislatures have already passed sales tax simplification laws allowing them to collect taxes out of state, and any state wanting to collect taxes from remote sellers must follow suit. Measures in these laws include designating a single state organization to handle sales tax registrations and providing software and services for managing compliance that puts the burden for accurate collection on the state and not the retailer. States must also agree to use “destination sourcing,” meaning that an Ohio consumer buying from a California seller pays the Ohio tax rate.

Amazon has fought state sales tax challenges for years, but French believes that even pure-play online retailers should welcome passage of the legislation.

“It gives them certainty about the future,” he says. “While the bill does not require retroactive challenge, there is always the possibility Amazon could be sued by a state and have to pay the taxes from its bottom line.”

Online sellers with less than $500,000 in annual revenues would be exempt from tax collection under this bill.

UPDATED: 5pm, 2/14/13

The Direct Marketing Association issued a statement this afternoon expressing disappointment with the Marketplace Fairness Act, saying it would "conscript American businesses" to serve as "unpaid tax collectors for the state." The DMA further labeled the bill "bad policy" that would interfere with the free flow of interstate commerce. In an uncertain economy, the statement continued,"placing new, unfunded mandates on out-of-state companies to comply with complex and changing tax structures...will hamper e-commerce, a fast growing segment in our economy."